The new tax regime

My father, a retired Chartered Accountant, sent me over WhatsApp photos of several forms that had been mailed to me by the Internal Revenue Department. The letter was received on the 16th. As I am not in the country, he had opened the letter and read through its contents before messaging me. He was worried. The form, titled, ‘Statement of Estimated Income Tax Payable (Self-Assessment Basis)’, was just two pages. The instructions to fill out the form was five pages long. Many others would have got these documents over the course of the past one or two weeks. They are part of this government’s revamped tax regime, aimed overarchingly at the simplification of pre-existing tax frameworks and ensuring that all those above a certain income level pay tax. Nothing wrong in this, in the main. The devil, however, is both in the details and execution.

For starters, the instructions were gobbledygook. My father said he just couldn’t understand it. I said I’d take a look at the instructions and form, which are readily downloadable from the IRD’s website. Things went downhill from there. The very first point noted that “As per the form specified by the Commissioner General in terms of the provisions laid down in Section 90, 91, 92 of the Inland Revenue Act No.24 of 2017, which is in effect from 01.04.2018, each person who is liable to pay income tax, is required to submit a Statement of Estimated Income Tax Payable for a year of assessment on or before the 15th August of that year of assessment”. Given that the letter from the IRD only came on the 16th, I was already late to submit everything. Worse, I was liable to be punished for this under the Inland Revenue Act. But this is where things got even more confusing. “Accordingly pay a penalty equal to the greater of 5% of the amount of the tax owing, plus a further 1% for each month during which the failure to file continues and; Rs.50,000 plus a further Rs.10,000 for each month during which the failure to file continues. (maximum penalty shall be limited to Rs.400, 000)” is verbatim, the language from Section 1.5 of the instructions. I cannot for the life of me fathom what the first part of that means in particular or what any of it means in general. Instances where the prior payments before the initial stage or withholding taxes are not existed is another example, later in the document, that makes no sense whatsoever. I cannot imagine a single ordinary citizen comprehending even remotely, any of this. These are not exceptions. The entire document is defined by vacuous verbosity, grammatically incoherent sentences, an incredibly lousy presentation of instructions, confusing language, a maddening incoherence and examples that don’t make any sense whatsoever. There is no consideration of citizens living abroad who have to file returns or estimates before the deadlines, or in the case of, for example, post-graduate students like myself away from Sri Lanka for several years. There is no electronic and web-based filing system to facilitate submissions or tracking. There are instructions for payments to be made to any branch of the Bank of Ceylon, but no further details like payee or account details given. There are long, unfriendly codes for instalments, but no clear instructions on where or how to use these codes. The entire document reeks of an internal draft sent by one low-level clerk to another, in shorthand and language only they fully comprehend, suddenly released to a hapless general public.

Mangala Samaraweera, the Minister of Finance and Media and Eran Wickramaratne, the State Minister of Finance have been at pains in recent months to push through tax reform and explain the new framework, its importance and how it all works. I have been repeatedly assured that Ivan Dissanayake, the present Commissioner General of the IRD is a progressive individual. Good intentions however only go so far. Those eligible to pay tax, possibly running into the millions, have got these forms from the IRD. On social media, I was informed last week that a revised set of guidelines was being produced in order to deal with the chaos and confusion arising from the current set of instructions. It is unclear what this all means for the stated deadlines for the submission of the forms. In what may be the greatest of ironies, will conscientious citizens be subject to steep and recursive fines just by waiting for clear instructions from the government on how they can comply with the law? It is unclear when the revised guidelines will be produced and published, and since not everyone has access to the web in Sri Lanka, posted. It is unclear why the IRD did not work in concert with the ICT Agency of Sri Lanka in order to not just provide web and mobile phone based means to enter these details but to also help in the design of material to guide citizens. The government now has brilliant young economists who have been exposed to modern, progressive frameworks of citizen engagement, government operations, tax regimes, communications and service delivery mechanisms. Tellingly, some of them are lamenting on social media that they too are at a loss to comprehend and comply with the IRD forms. Where does all this leave the ordinary citizen?

This is ultimately not about tax. The sheer incompetence by the IRD and relevant line ministries in generating willing compliance through the reduction of friction around comprehension, calculation, processing, submission and tracking invariably contributes to growing anger around just how ill-spent tax revenues are, especially in light of MPs who do not attend parliament, yet want pay hikes and even more SUVs. We are dealing with popular public sentiment that channels the frustration over compliance with how things were in the past, and this bungling with a roseate nostalgia around the efficiency with which things were done in the past. A Palaeozoic and maddeningly complex architecture like our country’s tax regime doesn’t lend itself to reform. Recognising this, the government should have invested far more in testing and developing interaction points, dashboard, citizen interfaces and interactive instructions that ease the friction around compliance, for citizens entirely unused to being taxed in this manner. The instructions from the IRD end with a letter from Mr Dissanayake noting his appreciation of responsible citizens who pay tax, not as a responsibility but a social obligation. There’s a whole discussion around how the richest in Sri Lanka will by retaining the best lawyers and accountants, will end up declaring and paying, in comparison to their income, the least amount of tax. Meanwhile, millions of hapless citizens will have to wade through irascibly complicated forms, hotlines that don’t work and instructions that don’t make sense to try to pay their taxes, only to be further fined or penalised by the government for no valid or discernible reason.

This is not a tax regime. It is a Kafkaesque script that will through the sheer force of ill-will towards government it will generate, result in hastening the decline of the already dwindling support it enjoys. And the blame for all this lies not with the JO or Rajapaksa. If this is the best the most dedicated, brilliant and progressive minds in government can come up with, I am afraid that with the best of intent, we have ended up with the worst of outcomes.